[Ayush Raj is a 4th year BA LLB student at Gujarat National Law University]
On 4 July 2025, the Insolvency and Bankruptcy Board of India (IBBI) issued the Fifth Amendment to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations (CIRP Regulations), with immediate effect. These amendments principally revise regulations 36 and 38 of the 2016 CIRP Regulations to mandate fuller disclosure of avoidance transactions and related claims in the Information Memorandum (IM) and to prevent “stealth” assignments of such claims in resolution plans. The regulatory intent is to enhance transparency and information symmetry in the resolution process, in line with the objectives of the Insolvency & Bankruptcy Code, 2016 (IBC) regarding maximizing asset value and equitable treatment of creditors. This article explains the key changes, their fit within the IBC framework, and their likely impact on the Corporate Insolvency Resolution Process (CIRP).
Background: Avoidance Transactions and IBC Framework
Under the IBC, certain pre-insolvency dealings by the Corporate Debtor (CD) can be “avoided” to benefit the debtor’s estate. Chapter III of Part II of the Code identifies four categories of avoidance transactions (PUFE): preferential transactions (section 43), undervalued transactions (section 45), extortionate credit transactions (section 50) and fraudulent transactions (section 66), each with look-back periods and conditions. Section 66 further deals with fraudulent or wrongful trading, which targets business conduct that defrauds creditors or continues trading despite evident insolvency. The goal of these provisions is to unwind value-stripping transactions and recover assets for distribution to creditors, ultimately increasing estate value.
In practice, the Resolution Professional (RP) investigates potential avoidance claims during the CIRP and files applications in the National Company Law Tribunal (NCLT) seeking directions to set aside or recover these transactions. Notably, under regulation 35A of the CIRP Regulations (as inserted by the 2022 amendments), if the RP “makes a determination” that such transactions occurred, he must forward a copy of the application to each prospective resolution applicant to enable them to consider it in preparing their bids. However, prior to the latest amendments, the CIRP Regulations did not require the IM to disclose these identified avoidance claims or keep the IM updated. In many cases, prospective resolution applicants had incomplete information about the CD’s contingent claims, aggravating information disparities.
The Fifth Amendment addresses this gap. As the IBBI press release explains, the goal is “to strengthen transparency, accountability, and the treatment of avoidance transactions” in CIRP. The Board notes that incomplete disclosure in earlier cases left resolution applicants unaware of avoidance claims when submitting plans, undermining value discovery. By contrast, the new rules aim to ensure that both the Committee of Creditors (CoC) and bidders have full knowledge of any identified PUFE or fraud/wrongful trading claims before plans are finalised.
Amendments to Regulation 36: Expanded Information Memorandum
Regulation 36 of the CIRP Regulations governs the contents of the IM. The Fifth Amendment makes two key changes.
First, it mandates periodic updates to the IM (regulation 36(1)). The existing regulation 36(1) required the RP to submit the IM (electronically) to the CoC by the 95th day of CIRP. The amendment appends the phrase “and its subsequent updates thereof” to this clause. In practical terms, this obliges the RP not only to prepare the initial IM by day 95, but also to update and share the IM whenever new information emerges (e.g. additional avoidance claims or investigations). The amended text ensures the CoC (and, via the CoC, prospective applicants) receive updated IMs throughout CIRP.
Second, it requires disclosure of avoidance and fraudulent trading claims (regulation 36(2)(ha)). Crucially, a new clause (ha) is inserted in regulation 36(2). It mandates that the IM must contain “details of all identified avoidance transactions, if any, under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code and subsequent filings before the Adjudicating Authority, as referred under sub‑regulation (3A) of regulation 35A.”. This explicitly requires that any transaction discovered by the RP which falls under sections 43, 45, 50 or section 66 (fraudulent/wrongful trading) be described in the IM along with any related applications filed in the NCLT. In short, every avoidance claim that the RP has identified must be itemized and explained in the IM.
These changes close prior gaps. The CIRP Regulations did not explicitly provide for a comprehensive disclosure of such identified avoidance transactions in the IM. By imposing a blanket requirement to list all such transactions and update the IM, the amendment ensures the CoC and all bidders are “consistently apprised” of any avoidance applications the RP has filed or plans to file. This should prevent scenarios where a bidder wins a case and later discovers a value-heavy avoidance claim the CoC was aware of but never disclosed.
Amendment to Regulation 38: Restricting Assignment in Plans
Regulation 38 specifies mandatory contents of any resolution plan. The Fifth Amendment introduces a new sub-regulation 38(2A), which provides:
“A resolution plan shall not provide for assignment of any avoidance transactions under Chapter III or fraudulent or wrongful trading under Chapter VI of Part II of the Code that were not: (a) disclosed in the information memorandum; and (b) intimated to all prospective resolution applicants under sub‑regulation (3A) of regulation 35A before the last date for submission of resolution plans.”.
In effect, this means no resolution plan may include a clause assigning any PUFE claim or section 66 claim to a third party unless that claim was properly disclosed upfront in the IM and communicated to all bidders under regulation 35A(3A). The proviso states that this rule will not invalidate any plan already submitted before the amendment’s effective date, but going forward it bars “backdoor” assignment of such claims.
This addresses a specific concern: without this rule, a plan might quietly transfer, say, an avoidance lawsuit to the winning applicant without competitors knowing. Under the new regulation 38(2A), if the RP had identified an avoidance transaction but either failed to mention it in the IM or failed to circulate the NCLT application to resolution applicants (as regulation 35A(3A) already requires), then the plan cannot validly assign that claim. In other words, only disclosed and duly notified claims can be dealt with in the plan. This prevents backdoor assignment of high-value or sensitive avoidance claims to third parties without proper disclosure and “ensures a level playing field” among all bidders.
Regulatory Intent and Practical Considerations
Viewed in context, these amendments reinforce IBC’s fundamental goals. The Code emphasizes value maximization(section 1(1)(c)) and equal treatment of creditors; opaque resolution processes or information asymmetry can undermine both. By mandating full disclosure of potential recoveries (avoidance claims) in the IM, the amendments give creditors and bidders the information needed to accurately price their bids. If a bidder anticipates, for example, an additional ₹X lakh recovery from undoing a preferential transfer, that should factor into the plan’s valuation.
The amendments also bolster the duties of the RP. RPs already must investigate PUFE and section 66 cases within prescribed timelines (regulation 35A: form opinion by 75 days, file application by 130 days). Now they must be even more diligent in updating the CoC. Earlier, once the initial IM was shared, there was no explicit obligation to circulate its updates; now the IM (and updates) must reach every CoC member and every prospective applicant.
However, in practical terms, this may raise some operational questions. RPs will need systems to track emerging avoidance cases and promptly update the IM. Each updated IM must be shared under the same confidentiality undertakings as the original. There may be concerns about timing: if an avoidance application is filed very late in the CIRP, is there still “time” to update all plans? Here, regulation 38(2A) is strict, if not in the IM or not sent to resolution applicants before the last plan date, assignment cannot be in the plan. The bar is absolute (subject only to the grandfathering of existing plans). On the other hand, resolution applicants always had a right to information under regulation 35A(3A), so the new rule merely enforces that disclosure to the letter.
For stakeholders, these changes should mostly be beneficial. Creditors and honest bidders gain information; only hidden surprises are limited. If anything, aggressive strategic bidders could resent having to reveal their avoidance claims to competitors. However, such secrecy would distort bidding. Moreover, because section 66 claims often involve fraud by identifiable promoters, the changes align with the Code’s remedial purpose: claims that help recover value must be handled in the open.
Conclusion
The IBBI’s Fifth Amendment 2025 marks a targeted, technical yet significant reform. By embedding comprehensive avoidance-claim disclosure into regulation 36 and by linking the validity of any claim assignment in plans to that disclosure (regulation 38(2A)), the Board has closed a gap in the CIRP framework. These steps are consistent with the IBC’s values of transparency and maximization of value. In effect, they ensure that all stakeholders see the full picture of the debtor’s pending claims before resolution plans are presented and voted on. While the revisions will add to the RP’s workload, they should prevent post-approval conflicts over secret claims and improve commercial decision-making. It remains to be seen how effectively RPs implement these changes and whether the expected improvements in transparency and value discovery actually follow, especially in CIRPs initiated after 4 July 2025.
– Ayush Raj