Speeding Up Insolvency Proceedings Under IBC: Why Valuation & Avoidable Transactions Matter

India’s Insolvency and Bankruptcy Code (IBC) has fundamentally transformed corporate debt resolution. However, delays in valuation, disputes over transactions, and procedural inefficiencies continue to slow down insolvency proceedings.

In 2025 and beyond, regulators, lenders, and insolvency professionals increasingly recognise that accurate and timely valuation is central to faster resolution, higher recoveries, and regulatory compliance before the IBBI and NCLT.

Under India’s Insolvency and Bankruptcy Code (IBC), accurate and timely valuation plays a decisive role in speeding up insolvency resolution. Fair value, liquidation value, independence of valuers, and strict timelines improve bidder confidence, ensure IBBI compliance, reduce disputes, and prevent delays in the Corporate Insolvency Resolution Process (CIRP).

Valuation is not a formality under IBC—it directly influences bidding behaviour, recovery outcomes, and judicial decisions.

Read more: Understanding Valuation Under IBC – A Practical Guide

Accurate valuation acts as the foundation of creditor confidence and procedural efficiency.

• Regulatory Compliance: Mandatory under IBBI and NCLT guidelines

• Investor Confidence: Transparent values attract resolution applicants

• Speed: Timely valuation reduces procedural delays

• Transparency: Independent reports minimise litigation risk

Learn more: Net Asset Method of Valuation of Shares – Practical Guide

Once insolvency proceedings commence, it becomes critical to prevent asset diversion, value erosion, or preferential treatment that may harm creditors.

Creditors increasingly rely on business valuation services to:

• Conduct financial due diligence

• Identify asset stripping or undervaluation

• Assess recovery feasibility

Valuation plays a decisive role in detecting transactions designed to shift value away from the corporate debtor before or during insolvency.

The IBC empowers the NCLT to reverse certain transactions that unfairly prejudice creditors. These are collectively known as avoidable transactions.

Preferential Transactions (Section 43, IBC)

Definition:
A preferential transaction occurs when a corporate debtor transfers property or interest to benefit a creditor, guarantor, or surety for a past liability, giving them an unfair advantage during liquidation.

Conditions for Avoidance:

• Related-party transactions within 2 years before insolvency

• Other transactions within 1 year before insolvency

Why Valuation Matters:
Valuation helps determine whether assets were transferred below fair value or outside ordinary business practice.

Undervalued Transactions (Section 45, IBC)

Definition:
An undervalued transaction arises when:

• Assets are gifted, or

• Assets are transferred for consideration significantly lower than their actual value

Such transactions must not be part of ordinary business operations.

Valuation evidence is crucial to prove value erosion and creditor prejudice.

Transactions Defrauding Creditors (Section 49, IBC)

These transactions are deliberately designed to:

• Keep assets beyond creditors’ reach

• Reduce recoverable value

Key Difference:
The distinguishing factor is intent, which valuation analysis helps establish.

Extortionate Transactions (Section 50, IBC)

Extortionate transactions involve:

• Receipt of debt under unfair or exploitative terms

• Occurring within 2 years before insolvency

Though focused on receipt of credit rather than transfer of assets, the economic impact mirrors avoidable transactions.

Supreme Court’s Analysis: Jaypee Infratech Case

In Anuj Jain, IRP for Jaypee Infratech Ltd. v. Axis Bank Ltd., the Supreme Court clarified key principles governing preferential transactions.

Key Issues Examined:

• Whether mortgages created by Jaypee Infratech Ltd. (JIL) for loans taken by its parent company constituted preferential transactions

• Whether lenders of the parent company could be treated as financial creditors of JIL

Supreme Court’s Observations

The Court held that a transaction is preferential if:

1. There is a transfer of property or interest by the corporate debtor

2. The transfer benefits a creditor for an antecedent debt

3. The creditor gains a better position than under liquidation waterfall (Section 53)

4. The transaction occurs within the applicable lookback period

5. The transaction is not in the ordinary course of business

Final Judgment

The Supreme Court ruled that the mortgages created by JIL:

• Benefited related-party creditors

• Were executed within the lookback period

• Were not part of ordinary business operations

Accordingly, the transactions were held preferential and avoidable under IBC.

How Valuation Helps Identify Avoidable Transactions

Valuation reports are critical in insolvency litigation and resolution because they:

• Establish true asset value during lookback periods

• Detect undervaluation or asset diversion

• Support NCLT in reversing unfair transactions

• Protect creditor recoveries

• Reduce prolonged legal disputes

Key Takeaways for Creditors & Insolvency Professionals

• Always review latest financial statements and valuation reports

• Avoid transactions with financially distressed entities

• Engage independent valuation experts early

• Use valuation proactively to support CIRP timelines

Need a compliant valuation report for CIRP, preferential transaction analysis, or NCLT proceedings?

RNC’s valuation experts support lenders, IRPs, and resolution professionals with fair value and liquidation value reports aligned with IBBI regulations.

Request a confidential consultation today

About RNC

RNC is a respected provider of valuation consulting, insolvency advisory, insurance survey & loss assessment, and corporate finance services. Our techno-commercial expertise supports lenders, courts, and enterprises across complex financial and regulatory scenarios.

1) Why is valuation important in insolvency proceedings under IBC?

Valuation is mandatory in CIRP and helps creditors and resolution applicants understand the fair value and liquidation value of the corporate debtor’s assets. Timely, compliant valuation improves bidder confidence, reduces disputes, and supports faster resolution.

2) What is the difference between fair value and liquidation value in IBC?

Fair value reflects the estimated market value of assets between willing parties. Liquidation value estimates what the assets may realize under distress/liquidation conditions and is often used as a reference point for reserve pricing and recovery expectations.

3) What are avoidable transactions under IBC?

Avoidable transactions are transactions that can be reversed/annulled during insolvency because they unfairly harm creditors. These include preferential transactions, undervalued transactions, transactions defrauding creditors, and extortionate credit transactions.

4) What is the lookback period for preferential transactions under Section 43 of IBC?

A preferential transaction can be examined if it occurred within 2 years before insolvency for related parties, and within 1 year before insolvency for non-related parties.

5) How can valuation help identify preferential or undervalued transactions?

Valuation helps establish whether assets were transferred below appropriate value or in a way that gave certain parties an unfair advantage. It supports insolvency professionals and courts in assessing economic impact and deciding whether transactions should be reversed.