The Great Clawback: Indian Banks Fight to Reverse Rs 4 Trillion in Shady Pre-IBC Deals

Imagine the frustration: a company goes belly-up, leaving a trail of debt, and just before declaring insolvency, some assets or funds mysteriously vanish or change hands. Well, Indian banks are living this reality, and they're not taking it lying down. They're making a huge push, you see, to claw back a staggering nearly Rs 4 trillion from deals they consider dodgy, all conducted right before companies landed in the Insolvency and Bankruptcy Code (IBC) process.

This isn't just a minor skirmish; it's a full-blown offensive. Banks, acting as financial creditors, are increasingly focusing on what are termed 'avoidance transactions.' These include deals categorized as preferential, undervalued, fraudulent, or involving extortionate credit. Essentially, these are transactions where, perhaps unsurprisingly, assets were moved or sold off at a discount, or funds siphoned out, often to benefit related parties or to deliberately prejudice the creditors. It’s a significant amount of money that, if recovered, could make a real difference to their balance sheets.

So, what exactly are banks doing? They're actively pursuing these cases through the National Company Law Tribunal (NCLT), urging faster adjudication. They see these transactions as a crucial, yet often overlooked, avenue for recovery. Currently, the success rate for recovering funds through these avoidance applications isn't exactly stellar, hovering around just 5-6%. That's largely because proving 'intent' – demonstrating that the transaction was deliberately shady – is incredibly difficult, and the NCLT's plates are already overflowing with a mountain of other insolvency cases.

But the banks are getting smarter. They're leveraging the expertise of resolution professionals (RPs), who, during the insolvency process, are tasked with scrutinizing the company's financial history. It's these RPs who identify such suspicious transactions and then file applications with the NCLT to have them reversed. The hope is that by bringing these applications to the NCLT's attention more vigorously and providing solid evidence, they can cut through the legal complexities and get quicker judgments.

Ultimately, the objective is twofold: not only to recover as much of the outstanding debt as possible for the financial creditors but also to establish a stronger precedent. If banks can consistently reverse these pre-insolvency shenanigans, it sends a clear message to defaulting corporate debtors: you can't just move assets around willy-nilly before you face the music. It’s about restoring faith in the insolvency process and ensuring that those who lend money have a fair shot at recovery, even when things go south. It’s a long road, no doubt, but one that promises substantial returns if successful.