Scrutiny of pre-bankruptcy deals of businesses expanded: Nirmala Sitharaman

What Happened

The Insolvency and Bankruptcy Code (Amendment) Bill, 2025 was passed by both Houses of Parliament — the Lok Sabha passed it on March 30, 2026, and the Rajya Sabha followed with voice vote approval shortly after.
A key reform is the expansion of the "lookback period" for scrutinising pre-bankruptcy transactions: the window for examining potentially fraudulent or preferential transactions prior to the filing of an insolvency petition before the National Company Law Tribunal (NCLT) has been extended to two years.
The Finance Minister, presenting the rationale, stated that the expansion is aimed at preventing promoters from diverting assets or structuring transactions in the run-up to bankruptcy to benefit related parties at the expense of creditors.
Additional reforms in the amendment include measures to cut delays in insolvency resolution proceedings, improve transparency in the Corporate Insolvency Resolution Process (CIRP), introduce a framework for group insolvency, and establish a cross-border insolvency mechanism.
The government cited strong NPA recovery through the IBC process as justification for deepening and widening the Code's provisions to address continuing gaps.

Static Topic Bridges

Insolvency and Bankruptcy Code, 2016: Architecture and Significance

The Insolvency and Bankruptcy Code (IBC), 2016 is the primary legislation governing insolvency and bankruptcy for individuals, partnership firms, limited liability partnerships, and companies in India. Before IBC, India had a fragmented framework spread across the Companies Act, SICA (Sick Industrial Companies Act), SARFAESI Act, and DRT (Debt Recovery Tribunal) — leading to multiple overlapping proceedings, high NPAs, and poor creditor recovery rates.

IBC introduced a time-bound, creditor-driven process, placing the Corporate Insolvency Resolution Process (CIRP) at the heart of commercial insolvency. A key philosophical shift was from a debtor-in-possession model to a creditor-in-control model: once CIRP is initiated, the board of the corporate debtor is suspended and an Insolvency Professional (IP) appointed as Interim Resolution Professional (IRP) takes management control.

IBC administered by the Insolvency and Bankruptcy Board of India (IBBI) — the sectoral regulator for insolvency professionals, insolvency professional agencies, and information utilities.
Adjudicating authority for companies/LLPs: National Company Law Tribunal (NCLT); Appellate authority: NCLAT (National Company Law Appellate Tribunal).
CIRP timeline: 180 days, extendable by 90 days with NCLT approval; hard cap of 330 days including litigation.
Committee of Creditors (CoC): financial creditors form the CoC, which approves the resolution plan by 66% vote.
IBC has been amended multiple times: 2018, 2019, 2020 (COVID-related suspension), 2021, and now 2025.
NPA recovery: IBC has facilitated resolution with creditors recovering significantly higher amounts compared to pre-IBC mechanisms (though actual recovery rates vary widely by sector and asset quality).

Connection to this news: The IBC Amendment 2025 addresses a structural gap: promoters who anticipate insolvency sometimes execute preferential or fraudulent transactions in the months before filing, reducing the asset pool available to creditors. Expanding the lookback period to two years extends the window within which such transactions can be challenged.

Avoidance Transactions Under IBC: Types, Look-Back Periods, and Legal Mechanism

Sections 43 to 51 of the IBC deal with "avoidance transactions" — transactions entered into by a corporate debtor before insolvency admission that can be set aside by the Resolution Professional (RP) if they are found to have been structured to benefit specific parties at the expense of the general creditor body.

There are four categories of avoidable transactions:

Preferential Transactions (Section 43): Transfers that give a creditor, surety, or guarantor a better position than they would have in liquidation. Look-back period: 2 years for related-party transactions; 1 year for others (both measured from the date of insolvency admission).
Undervalued Transactions (Section 45): Transfers of assets at below-market value (gifts or grossly inadequate consideration). Same look-back periods as preferential transactions.
Transactions Defrauding Creditors (Section 49): Undervalued transactions deliberately structured to put assets beyond the reach of creditors or harm their interests. No fixed look-back period — intent-based.
Fraudulent Trading / Wrongful Trading (Section 66): Transactions during CIRP or pre-CIRP to defraud creditors; directors/managers personally liable.

The IBC Amendment 2025 standardises and potentially expands the look-back window for scrutiny — the announcement of a uniform two-year period simplifies the earlier differentiated approach.
The RP files an application before NCLT to seek avoidance of such transactions.
NCLT can restore assets, reverse transactions, or award compensation to the corporate debtor's estate.
India's IBC avoidance framework draws on the UK Insolvency Act, 1986, which has similar categories.

Connection to this news: The Lok Sabha and Rajya Sabha passage of the IBC Amendment 2025 extends the lookback period to a uniform two years, closing a window that allowed promoters to execute asset diversion strategies more than one year (but less than two years) before insolvency admission.

National Company Law Tribunal (NCLT): Role in India's Insolvency Ecosystem

The NCLT is a quasi-judicial body established under the Companies Act, 2013 (Section 408), and serves as the adjudicating authority for corporate insolvency matters under IBC. It replaced the earlier Company Law Board (CLB) and took over functions from Board for Industrial and Financial Reconstruction (BIFR). NCLT has benches across India; the principal bench is in New Delhi.

Key roles of NCLT in IBC: - Admits or rejects applications for CIRP (filed by financial creditors, operational creditors, or the corporate debtor itself). - Approves appointment of Insolvency Professionals. - Approves or rejects resolution plans submitted by the CoC. - Adjudicates avoidance transaction applications filed by the RP. - Oversees liquidation proceedings when no resolution plan is approved.

Financial creditors (banks, NBFCs, bondholders) initiate most CIRP cases — they have the right to form the CoC.
Operational creditors (suppliers, employees, government) can also trigger CIRP but are not part of the CoC.
The Supreme Court, in Essar Steel (2019), upheld the constitutionality of IBC and affirmed the supremacy of the CoC's commercial decision-making within the timeline framework.
NCLAT (National Company Law Appellate Tribunal) hears appeals from NCLT; further appeals go to the Supreme Court on questions of law.

Connection to this news: NCLT is the forum before which the expanded lookback period becomes operational — it will adjudicate avoidance transaction applications filed by RPs covering a two-year pre-insolvency window, potentially recovering more assets for creditors.

Key Facts & Data

IBC (Amendment) Bill, 2025: Lok Sabha passed March 30, 2026; Rajya Sabha passed (voice vote) shortly after.
Lookback period for pre-bankruptcy transaction scrutiny: expanded to 2 years uniformly.
IBC, 2016: Governs insolvency for companies, LLPs, individuals, and partnership firms.
CIRP timeline: 180 days + 90-day extension; hard cap of 330 days (including litigation).
IBBI: Insolvency and Bankruptcy Board of India — regulator for IBC ecosystem.
Adjudicating authority: NCLT (companies/LLPs); DRAT/DRT (individuals/partnership firms).
Avoidance transaction categories: Preferential (S.43), Undervalued (S.45), Defrauding creditors (S.49), Fraudulent/wrongful trading (S.66).
CoC approval threshold for resolution plan: 66% by value of financial debt.
Earlier look-back periods: 2 years (related-party preferential transactions), 1 year (arm's-length preferential transactions).
Group insolvency framework and cross-border insolvency mechanism also introduced by the 2025 Amendment.