The Insolvency and Bankruptcy Board of India’s (IBBI) move to manage the accounts of corporate and voluntary liquidation directly and on a permanent basis, may hit a road block, as this requires excluding the accounts from the ambit of the Public Account of India (PAI), sources said.

Under Artcle 266 of the Constitution, PAI is a bank account that holds funds received by the government on behalf of others. This account is managed and held in trust by the government, which acts as a banker, by both receiving and repaying funds, and paying and recovering advances.

The IBBI’s proposal in a recent discussion paper is aimed at enhancing the efficiency of the liquidation process under the Insolvency and Bankruptcy Code (IBC).

As per the current rules, the completion of the liquidation process requires that all the proceeds be distributed to the stakeholders. However, in several cases, the proceeds are unable to be distributed to some of the stakeholders due to the unavailability of requisite details about them, which delays the liquidation process.

The undistributed proceeds, in such cases, are kept by the IBBI in the corporate liquidation account (CLA) and corporate voluntary liquidation account (CVLA)–both of which are under the PAI.

The extant rules further mandate that any amount in the CLA/CVLA, which remains undistributed for a period of fifteen years from the date of order of dissolution of the corporate debtor (CD), along with accrued interest, shall be transferred to the Consolidated Fund of India (CFI). This provision, precisely, will cease to exist if IBBI takes control of the two accounts, experts say.

“The government may have to deliberate carefully on IBBI’s proposal to retain the CLA, as it involves diverting funds that traditionally contribute to the PAI and, indirectly, the CFI. Such a move could serve to impact fiscal flexibility and lead to potential revenue shortfalls,” said Ketan Mukhija, senior partner, Burgeon Law.

“That said, by centralising unclaimed funds and streamlining the liquidation process, IBBI is seeking to ensure better stakeholder engagement and organisation,” Mukija added.

Saumya Brajmohan, partner at Solomon & Co said that even though the proposal to let IBBI retain these funds raises concerns about potential revenue loss, it must be weighed against the benefits of faster resolutions, greater transparency, and improved stakeholder satisfaction. “Ultimately, the decision hinges on the government’s evaluation of the trade-offs between fiscal considerations and the systemic gains of a more streamlined insolvency framework,” she said.