When a company slides into insolvency, money and assets sometimes leave it in ways that hurt creditors: a related lender is repaid ahead of everyone else, a property is sold to a promoter's relative for a fraction of its value, or business is run for months with no hope of paying suppliers. The Insolvency and Bankruptcy Code allows such transactions to be undone. Collectively they are often called PUFE transactions: preferential, undervalued, fraudulent and extortionate.
Avoidance applications are filed before the NCLT, usually by the resolution professional or liquidator after a transaction audit. The 2026 amendment strengthened the regime: the look-back periods now run from the date the insolvency application was first filed, not the date of admission, and creditors can approach the tribunal themselves if the professional fails to act. This page explains each type of transaction and how recovery works.
हिंदी में सारांश
दिवाला से पहले कंपनी से गलत तरीके से निकाला गया पैसा या संपतà¥à¤¤à¤¿ वापस लाई जा सकती है। IBC के तहत चार तरह के लेनदेन रदà¥à¤¦ किठजा सकते हैं — तरजीही à¤à¥à¤—तान (preferential), कम कीमत पर बिकà¥à¤°à¥€ (undervalued), लेनदारों को धोखा देने वाले (fraudulent) और अतà¥à¤¯à¤§à¤¿à¤• बà¥à¤¯à¤¾à¤œ वाले (extortionate)। 2026 संशोधन के बाद पीछे देखने की अवधि अब पहली दिवाला याचिका दायर होने की तारीख से गिनी जाती है, और RP कारà¥à¤°à¤µà¤¾à¤ˆ न करे तो लेनदार खà¥à¤¦ NCLT जा सकते हैं।
Is this your situation?
- You are a creditor and suspect assets were moved out of the company before insolvency
- A related party or favoured lender was repaid shortly before the company collapsed
- Property was sold to a group company or a promoter's relative at a low price
- The company kept taking credit from suppliers when directors knew it could not pay
- You are a resolution professional reviewing transactions for the committee
- You received a notice of an avoidance application as a buyer or a recipient of payment
The four kinds of transactions
Preferential transactions (Section 43)
A transfer of property or payment to a creditor, surety or guarantor for an existing debt that puts them in a better position than they would have been in liquidation. The look-back period is two years for related parties and one year for others. Transfers in the ordinary course of business and those creating security for new value are excluded.
Undervalued transactions (Section 45)
A gift, or a transfer for significantly less than the value of what the company gave, not in the ordinary course of business. The look-back period is two years for related parties and one year for others.
Transactions defrauding creditors (Section 49)
An undervalued transaction made deliberately to keep assets away from creditors or to harm their interests. No fixed look-back period applies. After the 2026 amendment, this provision also reaches assets of the company's related parties.
Extortionate credit (Section 50)
Credit given to the company in the two years before insolvency on terms requiring exorbitant payments. Credit by regulated lenders in line with law is excluded.
Fraudulent trading (Section 66(1))
Business carried on with intent to defraud creditors or for any fraudulent purpose. Persons knowingly party to it can be ordered to contribute to the company's assets.
Wrongful trading (Section 66(2))
Directors who knew, or should have known, that insolvency could not be avoided, and did not take due care to minimise creditors' losses, can be ordered to contribute.
What changed in 2026
With effect from 26 May 2026, the Insolvency and Bankruptcy Code (Amendment) Act, 2026 made three significant changes:
- New reference date for look-back periods. The one-year and two-year periods for preferential, undervalued and extortionate transactions are now counted backwards from the "initiation date", the date on which the first insolvency application was filed, instead of the insolvency commencement date. Long admission hearings no longer shrink the window. Transactions rushed through while a petition was pending are now squarely covered.
- Creditors can act directly. If the resolution professional or liquidator fails to file an avoidance application, creditors or members can approach the NCLT.
- Wider reach for fraud. The provision on transactions defrauding creditors now extends to assets of the company's related parties.
These changes make avoidance remedies more useful for creditors. They also mean promoters should take advice before any significant transaction once a petition is threatened or filed.
How avoidance claims are pursued
Transaction audit
The resolution professional, often with a forensic auditor, reviews bank statements, ledgers, asset registers and related-party dealings for the look-back period. Creditors can provide leads and documents.
Forming an opinion within the regulatory timeline
The CIRP Regulations require the professional to form an opinion on whether such transactions took place, determine them and file applications within set timelines during the process.
Application to the NCLT
The application identifies each transaction, the parties, the dates, the amounts and why it falls under the relevant section, with supporting documents.
Notice and reply
The recipients of the payment or property, often promoters, group companies or favoured creditors, are given notice and file replies. Defences commonly argue ordinary course of business, fair value or lack of knowledge.
Order and recovery
The NCLT can order reversal of the transaction, return of property, release or discharge of security, payment of the benefit received, or contribution by directors. Proceeds benefit the creditors as the law and the plan provide.
Appeals
Orders can be appealed to the NCLAT within 30 days, with up to 15 more days for sufficient cause.
Defending an avoidance application
If you have received notice of an avoidance application, for example as a buyer of property or a creditor who was repaid, the key defences depend on the type of transaction:
- Ordinary course of business: regular payments to suppliers on usual terms are generally protected from preference claims.
- Fair value: a sale at market value, supported by a valuation report and actual payment, is not undervalued.
- Good faith and no notice: a buyer who paid value without knowledge of the company's insolvency may be protected in some cases.
- Outside the look-back period: check the dates carefully against the new initiation-date rule.
- New value: security created in exchange for fresh funding is treated differently from security for old debt.
Avoidance applications can put significant amounts at risk, so respond with documents rather than general denials.
Time and typical cost
Fees are agreed in writing for each stage and do not depend on the amount recovered.
| Stage | Usual time | What it involves |
|---|---|---|
| Transaction review and leads | 2 to 8 weeks | Bank records, forensic findings |
| Drafting the application | 2 to 4 weeks | Transaction-wise pleadings and documents |
| Hearings before the NCLT | Several months | Replies, rejoinders, arguments |
| Appeal | Within 30 days (+15) | NCLAT proceedings |
Documents that help
Financial records
- Bank statements for two to three years before the initiation date
- General ledger and related-party ledgers
- Asset register and sale deeds
Corporate records
- Board minutes approving the transactions
- Related-party disclosures in financial statements
- Valuation reports for assets sold
For creditors
- Your claim and evidence of how others were paid
- Any information about asset transfers to group entities
A plant sold to a cousin's company
Here's a made-up example. Eight months before a Delhi company's insolvency application was filed, it sold its warehouse in Kundli to a company owned by the managing director's cousin for Rs 3 crore. A valuer engaged by the resolution professional put the value at Rs 7.5 crore. The admission hearing took five months.
Under the old rule, the look-back would have run from admission. After the 2026 amendment, it ran from the date the application was filed, so the sale fell well within the two-year period for related parties. The resolution professional filed an application under Section 45 and Section 49. The NCLT set aside the sale, subject to refund of the price actually paid, and the warehouse was included in the assets available for the resolution plan.
Mistakes made in avoidance claims
- Pleading in generalities: each transaction needs its own facts: dates, parties, amounts and why it falls under a particular section.
- Using the wrong reference date: after the 2026 amendment, look-back periods run from the initiation date. Older pleadings using the commencement date may miss transactions.
- No valuation evidence: an undervalued transaction claim needs a credible valuation of what the company gave.
- Ignoring the ordinary course defence: routine payments to suppliers on usual terms are generally protected. Focus on unusual transactions.
- Late filing: the regulations set timelines for the professional to form an opinion and file. Creditors should press for action early, and can now act directly if the professional does not.
Look-back periods after 2026
| Transaction | Section | Look-back (related party) | Look-back (others) |
|---|---|---|---|
| Preferential | 43 | Two years before the initiation date | One year before the initiation date |
| Undervalued | 45 | Two years before the initiation date | One year before the initiation date |
| Extortionate credit | 50 | Two years before the initiation date | Two years before the initiation date |
| Defrauding creditors | 49 | No fixed period | No fixed period |
| Fraudulent or wrongful trading | 66 | Based on conduct before insolvency | Based on conduct before insolvency |
Forensic audits
Most avoidance claims start with a forensic audit commissioned by the resolution professional with the committee's approval. Forensic auditors trace large or unusual payments, transactions with related parties, round-tripping of funds, sales of assets below book value, and sudden repayments to favoured creditors in the months before insolvency. Their findings are not conclusive by themselves; the NCLT decides each application on the evidence. Creditors with information about suspicious dealings, such as a competitor who bought assets cheaply or a group company that received business, should share it with the professional early, in writing.
Checklist for a resolution professional
- Get the books, bank statements and ledgers for at least two years before CIRP
- Appoint a transaction auditor to review transactions
- Identify related-party payments, asset sales and guarantees
- Compare prices with valuations or market evidence
- Record the date each transaction was found
- Seek CoC views on pursuing applications and funding
- File applications within the regulation timelines
- Ensure the resolution plan says who keeps any recovery
Applications after the plan is approved
A long-running question was whether avoidance applications survive once a resolution plan is approved and the resolution professional's role ends. Tribunals and High Courts took different views over the years, and the outcome has often turned on what the plan itself says about pending applications and who is to pursue them. The practical lesson is that the plan should deal with these applications expressly: who will prosecute them after approval, who funds them, and who keeps any money recovered.
For creditors, this is important. Where significant value was taken out before insolvency, creditors may want the plan to give them the recoveries, rather than passing them to the new owner. Resolution applicants, in turn, may price the plan differently depending on who keeps the recovery. We advise CoC members and bidders on how to deal with this in the plan. See also resolution plans and suspended directors.
A property sold at a low price
Here's a made-up example. Eleven months before CIRP, a Kolkata engineering company sold an office building to a company owned by its managing director's brother-in-law for Rs 4 crore. A valuation obtained by the resolution professional put the market value at Rs 9 crore.
The resolution professional applied under Section 45 to set aside the sale as undervalued. Because the buyer was a related party, the two-year look-back period applied. The buyer argued that the building needed repairs. The NCLT found that the repairs did not justify the gap in price, set aside the transfer and directed the buyer to return the property against refund of the price paid, which ranked as a claim in the CIRP.
Frequently Asked Questions
What is a preferential transaction?
A payment or transfer that puts a creditor or guarantor in a better position than in liquidation, within one year (or two years for related parties) before the initiation date, outside the ordinary course of business.
What changed in 2026 about the look-back period?
It now runs from the date the first insolvency application was filed, not the date of admission.
Who can file an avoidance application?
The resolution professional or liquidator. Under the 2026 amendment, creditors or members can approach the NCLT if the professional fails to file.
Can directors be made personally liable?
Yes. Under Section 66, persons involved in fraudulent trading, and directors responsible for wrongful trading, can be ordered to contribute to the company's assets.
Is there a time limit for transactions defrauding creditors?
Section 49 has no fixed look-back period, because the focus is on the deliberate intent to defeat creditors.
I bought property from a company that later went insolvent. Am I at risk?
Possibly, if the price was well below value or you were a related party. A fair price, proper payment and good faith are your main defences.
Who benefits from the recovered money?
The creditors, in the manner the law and the resolution plan provide.
How are your fees decided?
By the scale of the review and the number of transactions, agreed in writing. They do not depend on recovery.
Suspect Money Was Moved Out?
Share what you know about the transactions and the case details. We will tell you whether an avoidance claim is realistic and who should file it.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Recovering Money Siphoned Before Insolvency?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
