The July 2025 IBBI Amendment: A Legal Firewall Against Fraud in Real Estate Insolvency

Introduction: A Systemic Rebalancing of Law, Justice, and Stakeholder Trust

In a long-overdue yet landmark reform, the Insolvency and Bankruptcy Board of India (IBBI) has fortified India’s corporate insolvency framework through the Fifth Amendment to the CIRP Regulations, notified on 4 July 2025.

This amendment strikes at the heart of one of the most misused vulnerabilities in insolvency proceedings — the concealment of fraudulent, preferential, and undervalued transactions by promoters, which left creditors and homebuyers powerless while defaulting real estate companies navigated CIRP with impunity.

Historically, defaulting builders routinely diverted buyer funds, transferred assets to group entities, or withheld critical title and encumbrance data — only to invoke IBC to seek immunity via resolution plans, often with collusion or through opaque Information Memoranda (IMs).

The July 2025 amendment corrects this misalignment. It mandates that:

• Avoidance transactions (under Sections 43 to 66 of IBC) be disclosed transparently in the IM;

• The IM be updated and shared periodically with CoC and resolution applicants; and

• No resolution plan extinguish or assign avoidance claims unless these were disclosed before submission deadlines.

This legal shift is not cosmetic — it marks a decisive turning point. It transforms CIRP from a mere procedural framework into a justice delivery mechanism — one that demands accountability, transparency, and equal access to facts for all stakeholders.

Part I: The Legal Framework — What Has Changed

1. Mandatory Disclosure of Avoidance Transactions in the IM

[Regulation 36(2)(l) & (m)]
The Resolution Professional (RP) must now mandatorily disclose in the Information Memorandum all transactions identified under:

• Section 43: Preferential transactions

• Section 45: Undervalued transactions

• Section 50: Extortionate credit

• Section 66: Fraudulent and wrongful trading

2. Periodic Updates of the IM and Equal Access to Stakeholders

[Regulation 36(5) and 35A(3A)]
The IM must be updated as avoidance transactions emerge and shared with the Committee of Creditors (CoC) and all prospective resolution applicants (PRAs). This ensures real-time transparency and equitable access to vital information.

3. Restriction on Assignment of Avoidance Claims

[Regulation 35A(4) and 38(1A)]
Resolution plans can no longer monetize, extinguish, or assign avoidance transactions unless they were:

• Disclosed in the IM; and

• Communicated to all PRAs before the plan submission deadline.

This closes a critical loophole often exploited to bury avoidance claims through collusive resolution proposals.

Part II: Real-Life Examples That Forced Legal Reform

1. Amrapali Group

Over ₹3,500 crore was diverted from homebuyers into shell entities and unrelated group firms. Forensic audit findings were not effectively utilized during CIRP. Ultimately, the Supreme Court had to step in to enforce promoter liability and asset recovery.

Why the amendment matters now:
Forensic findings are now required in the IM, enabling timely action under Section 66 and safeguarding buyer interests.

2. Supertech Ltd.

Over 25,000 buyers were impacted. The group created multiple layered entities to divert funds. Insolvency was admitted based on a single homebuyer’s petition, but core transactions remained hidden during CIRP.

Impact under new regime:
RP must disclose diversion trails. PRAs must structure plans acknowledging the fraudulent context. Buyers can oppose any resolution that conceals such history.

3. Jaypee Infratech

Land parcels were transferred to group companies at undervalue, compromising recovery for banks and buyers. These were not disclosed in early resolution proposals.

Reform effect:
Such undervalued transactions must now be reflected in the IM and factored into the resolution valuation.

4. Orior Developers (Karjat & Jaipur)

Buyers paid in full, but land titles were never transferred to the company. The land remained in the personal names of promoters, and buyers had no legal recourse during insolvency.

Under the amendment:
Such ownership mismatches must be disclosed. CoC and buyers can seek promoter liability under Section 66.

5. Ansal Buildwell (Gurgaon Projects)

Land sold to buyers was already mortgaged without disclosure. The IM remained silent on these encumbrances.

Post-amendment safeguard:
All encumbrances and red flags from forensic or title reports must be part of the IM and resolution strategy.

Part III: A Legal Firewall for Creditors and Plot Buyers

1. Empowering Creditors Through Information Symmetry

• Lenders and ARCs now have legal visibility over frauds, transfers, and undervalued dealings.

• CoC can challenge undervalued resolution plans that do not include avoidance recoveries.

• Avoidance actions can contribute to higher asset valuations and strategic recoveries.

2. Restoring Homebuyer Rights

• Plot and flat owners get informed participation via their ARs in CoC.

• They can demand forensic details, insist on Section 66 actions, and block whitewashing plans.

• Recovery from avoidance claims can now be ringfenced for project completion.

Part IV: Enabling Justice — From Disclosure to Accountability

1. Section 66: Personal Liability of Promoters

Directors and promoters can be held liable for:

• Fraudulent or wrongful trading;

• Misuse of company funds or deepening insolvency.

Disclosures in the IM form the basis for such personal liability proceedings before NCLT.

2. Section 68–70: Criminal Action for Evidence Tampering

Promoters who hide or destroy records, or falsify accounts, can be prosecuted.
Disclosures backed by forensic audits become admissible evidence, leading to criminal consequences.

3. Section 30(2)(e): Invalidating Plans That Conceal Fraud

Any resolution plan that suppresses material facts or violates laws can be rejected by NCLT.
CoC, homebuyers, or even public authorities can seek invalidation of collusive or compromised resolutions.

Part V: Strategic Use of the Amendment by Stakeholders

Creditors

• Insist on forensic audit summaries in the IM

• Demand resolution strategies on avoidance claims

• Reject undervalued plans or suspicious clean exits

Homebuyer Associations

• Use ARs to monitor disclosures

• File objections for omitted promoter frauds

• Seek allocation of recovered assets toward project completion

Resolution Applicants

• Must undertake due diligence on disclosed transactions

• Cannot extinguish claims unless pre-disclosed

• Must price resolution plans transparently to avoid rejection

Conclusion: A Justice-Oriented IBC Finally Emerges

The July 2025 IBBI Amendment represents a structural rebalancing — one that shifts the fulcrum of CIRP from procedural compromise to legal enforcement.

• Fraud will no longer be erased through secret settlements.

• Buyers and creditors will no longer be left uninformed.

• Promoters will no longer use insolvency as a shield against their own wrongdoing.

The amendment restores faith — not only in the letter of insolvency law, but in its moral spine.References

• Insolvency and Bankruptcy Code, 2016 — Sections 25, 29, 30(2)(e), 43–66

• IBBI CIRP Regulations (Fifth Amendment), 2025

• Key Judgments: Amrapali, Supertech, Jaypee Infratech, Essar Steel, Kolla Koteswara Rao

• Companies Act, 2013 — Sections 210–212 (SFIO Investigations)